Chapter 7

Strategy Implementation
7.1.The Nature of Strategy Implementation
• The strategic-management process does not end
when the firm decides which strategy or strategies
to pursue.
• Implementing strategy affects an organization
from top to bottom; it affects all the functional and
divisional areas of a business. Successful strategy
formulation does not guarantee successful
strategy implementation.

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 Strategy Formulation vs. Implementation
Strategy Formulation Strategy Implementation
• Positioning forces • Managing forces
before the action during the action
• Focus on effectiveness • Focus on efficiency
• Primarily intellectual • Primarily operational
• Requires good • Requires special
intuitive and motivation and
analytical skills leadership skills
• Requires coordination • Requires coordination
among a few people among many people

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Prof.)
 Management Issues Central to Strategy
Implementation
• Establish annual
• Develop a strategy-
objectives
supportive culture
• Devise policies
• Adapt production/
• Allocate resources operations processes
• Alter existing • Develop an effective
organizational human resources function
structure
• Downsize & furlough as
• Restructure & needed
reengineer
• Link performance & pay
• Revise reward & to strategies
incentive plans
• Minimize resistance to
change
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 1. Annual Objectives
Establishing annual objectives is a decentralized
activity that directly involves all managers in an
organization.
Annual objectives are essential for strategy
implementation because they are:
 Basis for resource allocation
 Mechanism for management evaluation
 Major instrument for monitoring progress toward
achieving long-term objectives
 Establish priorities (organizational, divisional,
and departmental)
BY: Woldetsadik Kagnew (Assist.
1/4/2020 Ch 7 -4
Prof.)
Annual objectives should be measurable, consistent,
reasonable, challenging, clear, communicated
throughout the organization, characterized by an
appropriate time dimension, and accompanied by
commensurate rewards and sanctions.
2. Policies
 Policy refers to specific guidelines, methods,
procedures, rules, forms, and administrative practices
established to support and encourage work toward
stated goals. Policies are instruments for strategy
implementation.
 Policies set boundaries, constraints, and limits on the
kinds of administrative actions that can be taken to
reward and sanction behavior; they clarify what can
and cannot be done in pursuit of an
BY: Woldetsadik Kagnew (Assist.
organization's
objectives.
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Ch 7 -5
 3. Resource Allocation
• Strategic management enables resources to be allocated
according to priorities established by annual objectives.
• All organizations have at least four types of resources
that can be used to achieve desired objectives:
financial resources, physical resources, human
resources, and technological resources.
• A number of factors commonly prohibit effective
resource allocation including:
 an overprotection of resources,
 too great emphasis on short-run financial criteria,
 organizational politics,
 vague strategy targets,
 a reluctance to take risks, and
 a lack of sufficient knowledge.
BY: Woldetsadik Kagnew (Assist.
1/4/2020 Ch 7 -6
Prof.)
 4. Managing Conflict
• Interdependency of objectives and competition for
limited resources often leads to conflict. Conflict
can be defined as a disagreement between two or
more parties on one or more issues.
Approaches for Managing and Resolving
Conflict
Various approaches for managing and resolving
conflict can be classified into three categories:
avoidance, diffusion, and confrontation.
1. Avoidance: includes such actions as ignoring the
problem in hopes that the conflict will resolve itself
or physically separating the conflicting individuals
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Ch 7 -7
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2. Diffusion: can include playing down differences
between conflicting parties while accentuating
similarities and common interests, compromising so
that there is neither a clear winner nor loser,
resorting to majority rule, appealing to a higher
authority, or redesigning present positions.
3. Confrontation: is exemplified by exchanging
members of conflicting parties so that each can gain
an appreciation of the other’s point of view, or
holding a meeting at which conflicting parties
present their views and work through their
differences.

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 BY: Woldetsadik Kagnew (Assist.
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Prof.)
 5. Matching Strategy with structure
Changes in strategy often require changes in the
way an organization is structured for two major
reasons.
1. Structure dictates how objectives and policies will
be established
2. Structure dictates how resources will be allocated
• Changes in strategy often lead to changes in
organizational structure
• Basic Forms of Structure: 4 types
A. Functional Structure B. Divisional Structure
C. Strategic Business Unit Structure (SBU)
D. Matrix Structure
BY: Woldetsadik Kagnew (Assist.
1/4/2020 Ch 7 -10
Prof.)
 A) Functional Structure
• A functional structure group’s tasks and activities by
business function such as product/operations, marketing,
finance/accounting, R&D, and computer information
systems or MIS.

BY: Woldetsadik Kagnew (Assist.

1/4/2020 Ch 7 -11
Prof.)
 B) Divisional Structure
• Can be organized in one of four ways:
– By geographic area: is appropriate for
organizations whose strategies need to be tailored to fit
the particular needs and characteristics of customers in
different geographic regions.
– By product or service: is most effective for
implementing strategies when specific products or
services need special emphasis.
– By customer: using customer segments
(Niche)
– By process: is similar to a functional structure,
because activities are organized according to the way
work is actually performed.
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 Divisional Structure

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 C) Strategic Business Unit Structure (SBU)
• Group similar divisions into strategic business
units and delegate authority and responsibility for
each unit to a senior executive who reports
directly to the CEO.
• Advantages:
 improve coordination between similar divisions
 channeling accountability to distinct business
units.
• Disadvantages:
 it requires an additional layer of management,
which increases salary expenses, and
 the role of the group vice president is often
ambiguous.
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BY: Woldetsadik Kagnew (Assist.
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 D) Matrix Structure
• The most complex of all designs because it depends upon
both vertical and horizontal flows of authority and
communication.

BY: Woldetsadik Kagnew (Assist.

1/4/2020 Ch 7 -15
Prof.)
 6) Restructuring and Reengineering
Restructuring, also called downsizing, rightsizing,
or delayering, involves reducing the size of the firm
in terms of number of employees, divisions or units,
and hierarchical levels in the firm’s
organizational structure.
• The primary benefit sought from restructuring is
cost reduction.
Reengineering is concerned more with employee
and customer well-being than with shareholder
well-being. Reengineering, also called process
management, process innovation, or process
redesign, involves reconfiguring or redesigning
work, jobs, and processes for the purpose of
improving
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cost, quality, service,
BY: Woldetsadik and speed.
Kagnew (Assist.
Ch 7 -16
Prof.)
 7. Managing Resistance to Change
The thought of change raises anxieties because
people fear economic loss, inconvenience,
uncertainty, and a break in normal social patterns.
Almost any change in structure, technology, people,
or strategies has the potential to disrupt comfortable
interaction patterns. For this reason, people resist
change.
• Resistance to change may take on such forms as
sabotaging production machines, absenteeism,
filing unfounded grievances, and unwillingness to
cooperate.

BY: Woldetsadik Kagnew (Assist.

1/4/2020 Ch 7 -17
Prof.)
Although there are various approaches for
implementing changes, three commonly used
strategies are:
1. Force change strategy: strategy involves
giving orders and enforcing those orders; this
strategy has the advantage of being fast, but it is
plagued by low commitment and high resistance.
2. Educative change strategy: is one that
presents information to convince people of the need
for change but it results in slow and difficult
implementation of strategies
3. Rational or self-interest change strategy: is
one that attempts to convince individuals that the
change is to their personal advantage.
BY: Woldetsadik Kagnew (Assist.
1/4/2020 Ch 7 -18
Prof.)
 8. Human Resource Concerns
• Staffing need of the organization and its cost is
an important function of the human resource
manager. The other main concerns include
health, safety and security of the workers. The
plan must also include how to motivate
employees and managers during a time when
layoffs are common and workloads are high.
• A well-designed strategic-management system
can fail if insufficient attention is given to the
human resource dimension.

BY: Woldetsadik Kagnew (Assist.

1/4/2020 Ch 7 -19
Prof.)
Human resource problems that arise when
businesses implement strategies can usually be
traced to one of three causes:
• Disruption of social and political structures,
• Failure to match individuals' aptitudes with
implementation tasks
• Inadequate top management support for
implementation activities.

BY: Woldetsadik Kagnew (Assist.

1/4/2020 Ch 7 -20
Prof.)